The Great Inflation Of 2021 Is Still Haunting The Fed

Core Insights - The Federal Reserve is still grappling with the lingering effects of inflation that surged post-pandemic, impacting household budgets and influencing monetary policy decisions [2][10] - The Consumer Price Index (CPI) rose by 2.7% year-over-year in December, significantly lower than the peak of 9% in 2022, yet still above the Fed's target of 2% [3][10] - Fed officials are cautious about cutting interest rates further due to ongoing inflation concerns, despite previous rate cuts aimed at boosting the job market [4][10] Inflation Outlook - Fed officials are debating the balance between inflation control and job market health, with some expressing concerns that inflation remains above the target for nearly five years [5][6] - Factors influencing inflation include housing costs and the potential for tariff-related price increases to become sustained rather than temporary [7] - Fed officials, including Thomas Barkin and Raphael Bostic, emphasize the need for patience in addressing inflation, which has been stuck in the high 2s to low 3s range for the past two years [8] Interest Rate Decisions - The Fed's key interest rate was held steady in the most recent meeting, with expectations that it will remain unchanged for the next two meetings, at least until June [12] - There is a 66% probability of a rate cut in June, according to market forecasts [12] - Fed Governor Michelle Bowman expressed confidence that inflation will eventually reach the 2% target and suggested that the Fed should consider rate cuts if labor market conditions improve [9][11]